Annalise McAleer

7th April 2022


Microsoft plays the acquisition game

2022 has brought the largest gaming-based acquisition in history. In mid-January, Microsoft announced it was going to purchase Activision Blizzard, a well-known game-creator, for an eye-watering $69 billion USD. Will they reap the rewards from this huge acquisition or will they suffer from Activision Blizzard’s dwindling share prices and deteriorating outlook?

Microsoft is no stranger to M&A deals, including Hotmail, Yammer, Mojang and their second-largest acquisition, LinkedIn. The latter cost Microsoft just over $26 billion USD in 2016. Microsoft has a history of making ”add-ons” that complement current product offerings and build on the presence they already enjoy. For example, subsuming Hotmail into their e-mail service attached to Outlook, or Yammer being used as an intranet platform to keep employees updated, show an integrated strategy from the software giant.

Activision Blizzard is the result of the merger of Activision Publishing and Blizzard Entertainment, a deal that was struck in Spring 2008. Buying themselves out from their parent company Vivendi in 2014 allowed the game developer a string of success culminating in their headlining 2014 game, Destiny, making more than $500 million on the first day of release.  Activision Blizzard is now perhaps the leading game developer with a catalogue of titles including Call of Duty, World of Warcraft, Overwatch, Crash Bandicoot and Guitar Hero.

Despite their success, they have also faced struggles through lawsuits and rumours around potential new owners, which fluctuated their share prices and impacted their external impression. Their difficulties in recent years haven’t impacted their financial outlook as showcased in the latest Plimsoll Analysis on the world’s leading game development companies. Activision Blizzard enjoys a high and rising Plimsoll line due to their impressive profit margins and high sales which sit high above the industry average. It seems like Microsoft was able to look past the external difficulty Activision Blizzard was experiencing and see the full value behind the business.

Their staggering purchase price of $69 billion USD shouldn’t come as too much of a surprise. Although Plimsoll valued Activision Blizzard Inc. at just over $26 billion, their intellectual property including their Gamepass and console exclusive content would generate a stream of success which would easily add value to Microsoft and validate the purchase price of $69 billion.

Although Activision Blizzard has some incredible names within their all-star games list, could Microsoft have chosen to acquire multiple companies with equal amounts of property, which may have amassed further successes for Microsoft as they reach further into the video games industry? There definitely isn’t a drought of well-known video game publishers across the globe, from the likes of Square-Enix to Take-Two - if Microsoft wanted intellectual property, they could’ve cherry-picked any game genre they wished for.

Electronic Arts, a company that is already associated with Microsoft through their Gamepass,  may have been more of a fitting match. Valued at $38 billion, nearly half of Activision Blizzard’s purchase price, this may have been a smoother step for Microsoft to take while Activision Blizzard could’ve been their next opportunity.

The gaming and video gaming industry has continued to soar in recent years, now estimated to be valued at over $200 billion, which will most likely reach over $250 billion by 2025. Microsoft’s investment further into the industry would definitely aid Xbox – a huge division within their IT empire – which already have Activision as one of the main developers in their Xbox store. Microsoft’s acquisition of Activision Blizzard has been recorded as the largest acquisition seen in the industry. However, there is little doubt this will push for more consolidation in the industry over the next few years.

Financially, Microsoft has been in a steady but positive position. Plimsoll’s analysis indicates Microsoft’s sales have increased by 17.5% in the latest year, while Activision Blizzard saw an 8.8% increase. Hopefully, this acquisition will bring Activision Blizzard up to speed and allow them to move up the ladder within the global video game publishing industry.

If you’re looking at acquisitions for your business, and you’d like to assess all the possibilities available to you, Plimsoll can help you find your perfect acquisition, or even acquisitions. If you’d like to find out more, please call 01642 626470 or contact us.